ISYS Cost Analysis

MichieJ

Hi all,

I am using the case study of Chic Paints Ltd and the Credit Control Function.

I am trying to work out the costs of 1. Taking out an insurance policy against bad debt and 2. Upgrading the current Accounting system.

I have searched through Google to try and find some estimated costs but not found anything, can anyone help please??

I have currently put around £100k for an upgraded accounting system but not sure if this is too excessive.
Also I'm not sure if an insurance policy would be a set monthly premium of say £10k per month, or if it would be a % of the debt recovered, say 12%.

Can I put a made up estimate without referring to a website that I got the prices from in an appendix??

Any help would be appreciated!

Thanks
Michelle

LearningAcademy

Hi

1) Credit Insurance is too subjective and you will not find ready made information on the web about the costs without the context.

2) 'Upgrading the current accounting system' is too wide a term. It would to good to narrow down to: a) upgrading the existing accounting software b) further training c) development of policies and procedures to manage the transactions etc.

Once you narrow down your focus, it will be easy to attach the costs. Please note, you also have to consider notional costs (e.g. time spent for carrying out trial runs of the new software; time spent to transfer the data from the old software to the new one and so on. Similarly, if your recommendation includes training, notional cost would be time spent by the trainee employees on their training - assuming that it is done during working hours.

Depending on the accounting software package you recommend, the costs are easily ascertainable on the web. As for the cost of time spent, you can either use the case study to figure it out - otherwise use an assumed figure in consultation with the tutor/assessor.

Trust, this helps.
Thanks

Mightyquin

Hi,

I work in Credit Insurance and have had a number of enquiries about the potential cost of cover from accountancy students for 'Chic Paints' - It was disappointing the first time when I realised it wasn't a genuine enquiry!!

Credit insurance is quite a complex product and cover can be structured in many different ways to meet the particular needs (and budgets) of the company.

Cost also depends on a number of factors such as their previous track record i.e. do they have a regular level of bad debt, their trade sector/s, export markets, size of turnover, maximum exposure, number of customers etc.

Ultimately, credit insurance will pay out if a company goes under - it's not about comparing the cost to the wages of another credit controller or a new accounts system, both of which should help a business manage their risk, but ultimately won't save them if a major client becomes insolvent.

Most offices/factories have fire extinguishers don't they, but they also still have insurance against their premises burning down!

I'm happy to answer any questions.

James Earley
CMR Insurance Services Ltd

aat_trainingcompany

The costs need to be realistic – and usually some supplier printouts help.

100K for software for the company may be high - as sage could most probably cater for it for a fraction of the price. And you can price that easily from sage website and print the page.

There is something called debt factoring, which most banks would offer. If you go into a local HSBC branch (or any other) and ask them some details on it, I can't see why they cannot give you approximate figures.

Under debt factoring you can sell the customer debt for a percentage of the debt. So if you are owed £100K it may be that the bank is prepared to pay you £80K. How much they pay you depends on the risk of non-recovery - the probability of the customer not paying and that is likely to depend on whether it is disputed/aged of the debt. The company would then write to the customer to say we have sold the debt; you now owe that invoice to Barclays or whoever.

Or you can just take the risk with the current debt and keep chasing, and going forward tighten credit control - offer early settlement discount.